Construction sector shrinks at fastest pace since pandemic, survey suggests

Activity in the UK’s construction sector shrank last month at the fastest pace since the pandemic, partly due to uncertainty ahead of the Budget, a closely watched survey has indicated.

The research from S&P Global said November saw the steepest fall in output for five-and-a-half years, led by a downturn in infrastructure and housebuilding.

It added that commercial construction also faced “severe headwinds” last month as concerns over possible Budget measures “pushed clients to defer investment decisions”.

However, some analysts questioned whether the survey results were too pessimistic and suggested activity would pick up following the Budget.

S&P Global’s Purchasing Managers’ Index (PMI) for construction fell to 39.4 in November from 44.1 in October, where a score below 50 indicates the sector is contracting. It was the lowest score for the index since May 2020.

“November data revealed a sharp retrenchment across the UK construction sector as weak client confidence and a shortfall of new project starts again weighed on activity,” said Tim Moore, economics director at S&P Global Market Intelligence.

The government has pledged to build 1.5 million homes in England by 2029, but the industry says it is not being supported to achieve this.

That target is the equivalent of 300,000 properties a year, a rate of building not seen since the 1960s.

Legislation aimed at reforming the planning system to speed up housebuilding is currently going through Parliament.

The S&P report said that employment in the construction sector dropped for the 11th month in a row, with the latest job cuts “the most marked since August 2020”.

This reflected a lack of new work to replace finished projects and higher wage costs.

Optimism fell to its lowest since December 2022, Mr Moore added, “amid reports of cutbacks to client budgets and pervasive worries about long-term UK economic growth prospects”.

However, Matt Swannell, chief economic adviser to the EY Item Club, said the PMI figures should “be approached with a healthy degree of scepticism”.

He said negativity among firms appeared to “have been magnified by expectations of tax rises at the autumn Budget”, but with the actual rises announced at the lower end of expectations, “a significant rebound in the PMI next month seems likely”.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said while the PMI survey pointed to “catastrophic conditions” in the construction sector, he found it “hard to believe that conditions in the sector are genuinely as bad as during a full lockdown”.

However, while he thought growth would be better than the survey indicates, he expects activity in the construction sector “to remain muted in the coming months”.